Q. (cont.) In our company we request a verification of receipt (VOR) for services as invoices come in; we ask field personnel to confirm the service was performed. But what if, for example, we have a vendor who submits 2,000 invoices a month and each invoice is small dollars, say an average of $70 per invoice. It's a trucking company that performs fluid hauling. A field ops person calls in the service, but there is no one out in the field to validate that it was performed. In this case, logic tells me I can get blanket approval to approve and pay any invoices under a certain dollar limit; we will do this weekly. Field ops will get a detailed report that allows them to review and flag discrepancies. Because most invoices are small, they will review at a high level for trends.
A. We are struggling a little with your statement that no one in the field is able to validate that the service was performed, not knowing your business.
While a proven practice is to have a threshold for small dollar invoices (i.e., just pay invoices below X dollars), when there are 2,000 small invoices in a month, it becomes a large dollar payment (~$140,000 / month, or $35,000/week)! So this situation, because of the invoice volume, is not at all a typical small invoice situation where you’d have a needs-no-approval threshold without having some process of verification. This is the type of transaction that could be open to fraud, so it is important to “trust but verify.”
While we’re not familiar with the particulars of fluid hauling, shipments have to be picked up and delivered; seems there should be someone on both ends of the process? Perhaps not. But when a pickup is made, there must be some evidence (diminished stock); when the delivery is made, similar evidence: either way, the hauler can/should leave a receipt (that’s a lot of receipts). At the very least, then, for efficiency you could do random (they would have to be unpredictable) receipt audits/invoice matches rather than auditing/matching every batch/week. Is the volume relatively steady, i.e., are the numbers you give approximately the same each week/month?
If it is impractical/impossible to document the individual hauls efficiently and tie them to the invoices, you need a reliable way to associate the 500 invoices per week at $70 each with the total amount of services (hauling) done in a week— total volume shipped or volume produced from those hauls, etc., to verify that X dollars’ worth of services were provided. It can be through inference based on other production measures, provided that you can isolate the hauling done by that hauler (rather like an evaluated receipt model used in the auto industry, where the number of cars rolling out of the production plant is the confirmation that X number of spark plugs or X number of brake rotors were delivered as per PO, and the supplier is paid per PO terms without an invoice).
You could have a dollar-only PO, with no receipt required, and set a dollar limit that is appropriate for your business. This leaves the budget holder responsible to review what is hitting their budget and to call AP if a service was paid and never performed. The assumption with service is: the person who ordered it will call the supplier if it is not done or not done properly, and ensure service has been completed satisfactorily.